Crude gains some ground, rising above $72 a barrel; pump prices trimmed again

By Sandy Shore, AP
Wednesday, August 25, 2010

Oil settles higher after 6 days of declines

Oil prices settled higher on Wednesday, coming back from earlier lows that followed reports of weak orders for big-ticket durable goods and falling new home sales.

Benchmark crude for October delivery rose 89 cents to settle at $72.52 a barrel on the New York Mercantile Exchange. Crude has fallen about 11.5 percent from around $82 a barrel early this month.

At the pump, the national average for a gallon of unleaded regular gasoline slid to $2.696 a gallon, according to AAA, Wright Express and Oil Price Information Service. That’s 4.1 cents lower than a week ago and 7.3 cents more than a year ago.

Oil analyst Stephen Schork said that the rebound in crude prices came as natural gas prices fell. He said many traders had bet crude oil would fall below $70 per barrel, while natural gas prices went no lower than about $4 per 1,000 cubic foot. When natural gas dropped below that level, traders began to buy crude to cover their bets and avoid losses, Schork said.

Natural gas lost 16.8 cents to settle at $3.871 per 1,000 cubic feet.

Many analysts thought natural gas prices would rise this summer as the hurricane season kicked in and production was affected by big storms in the Gulf of Mexico. That has yet to happen and the huge supply of natural gas on hand is pushing down prices.

The Commerce Department said Wednesday that orders for durable goods, excluding transportation, fell at the steepest rate since January. The department also said new home sales dropped by 12.4 percent in July from June to seasonally adjusted annual sales of 276,600. That’s the slowest pace recorded since 1963.

The sluggish economy means weak demand for oil and gas. Crude and motor gasoline inventories both rose last week, staying at the upper levels of the average range for this time of year.

Commercial crude supplies increased by 4.1 million barrels, or 1.2 percent, to 358.3 million barrels for the week ended Aug. 20, the Energy Department said.

Gasoline inventories grew by 2.3 million barrels to 225.6 million barrels, which is 8.4 percent above year-ago levels. Wholesale gasoline demand for the four weeks that ended Aug. 20 averaged about 9.4 million barrels a day, down about 84,000 barrels from the previous week, the government said.

“Oil prices have shifted their focus to whether the global economy is likely to take another lurch down and, if so, what shape that movement away from the recovery would be, with the fears of a slowdown having spread like wildfire,” Barclays Capital said in a research report.

In other Nymex trading, heating oil rose 3.49 cents to settle at $1.9706 a gallon, gasoline gained 1.45 cents to settle at $1.8639 a gallon.

In London, Brent crude rose $1.10 to settle at $73.48 a barrel on the ICE Futures exchange.

Associated Press writers Pablo Gorondi in Hungary and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.

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